Is Your Dream House Insurable?

There can be an important stumbling block to getting to settlement - getting homeowner's insurance.

Insurance companies participate in a a huge database that includes not just claims a homeowner may make on a property, but also inquiries he may make. C.L.U.E. (Comprehensive Loss Underwriting Exchange) may know more about your house than you do.

For example, while my home is now in reasonably good shape (considering it's really, really old), a check into C.L.U.E. would show that I had a burst pipe a couple of years ago. To find it, State Farm's recommended contractors had to take two old upstairs bathrooms down to the studs. By the time they finished, I had two gorgeous bathrooms, at a cost to state farm of somewhere around $35,000. Then during the Snowmageddon of 2010, the roof on my garage collapsed under the weight of the white stuff, taking the garage door with it, and once again, State Farm came to the rescue. I now have a garage with a strong roof and nice new door, but it's another entry on the C.L.U.E. database.

While a buyers would view these as improvements that would make the house more attractive, their insurance agents might reach a different conclusion. They might instead think of the house as prone to claims, and perhaps uninsurable.

While there is a home inspection contingency included in our local boiler-plate contract language, there is no contingency allowing a buyer to get out of a contract in the event he or she cannot get insurance, or at least insurance at a less than exorbitant rate.

My recommendation?

Once you find the perfect house, call your insurance agent right away. If he can check the C.L.U.E. before the home inspection, it could turn up issues that might not be apparent, even to the most eagle-eyed house nerd. So if the sellers are "forgetting" to disclose last year's flood, and they did a decent clean up job, you'll know it happened and your inspector can pay to attention to water issues. The sellers might brag about how safe the neighborhood is, but if you find a string of break-ins, you'll know they are fibbing.

And you need to check right away, maybe before you even make an offer, but certainly during the home inspection period. After all, once the inspection contingency expires, it becomes very difficult to walk away from a ratified contract.

So add your insurance agent to the list of people who have to love your house before you can get to the settlement table.

Hi Pat - Good advice! What is scariest about finding out that the sellers "forgot" to disclose something that they clearly would remember, is that it leads me to believe that they are lying or covering up other things that may be important but for which they have not filed a claim. CLUE kind of gives you an idea of whether you are dealing with an honest seller, so it is worth doing.

This is excellent advice. I had not had problems myself but I know of buyers whose deals fell apart precisely because they could not get insurance. And some areas (e.g., fire) are high risk here and the cost of the insurance from those who WILL insure is sky high. Checking insurability is a must do, and a required part of our due diligence in the contract. And of course lenders want to know, too.

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